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Yesterday, the U.S. Supreme Court denied Allstate Insurance Company’s last chance to override a Texas law that prohibits insurance companies from owning collision repair shops.  Docket for 07-775

Allstate, and its wholly-owned subsidiary Sterling Collision Centers, Inc. (OK, I’m being lazy — Sterling is actually a wholly-owned subsidiary of Allstate Non-Insurance Holdings, Inc. — which is an indirect affiliate of Allstate) have been fighting with Texas since 2003 over the enactment of Tex. Occ. Code § 2307.002 that states “an insurer may not own or acquire an interest in a repair facility.”  The Texas Legislature enacted the statute because of grave concerns involved with the inherent conflict of interest present when an insurer collects premiums and provides the collision service to the policyholders as well.

Allstate and Sterling have been fighting tooth and nail to have the Texas statute declared unconstitutional — without riveting success — and despite having pulled out Allstate’s moldy wallet to spring for the likes of Kirkland & Ellis (the Washington, D.C. office, no less) and Mr. Pricey himself, Ken Starr.  Yes, Ken Starr of Monica Lew… well, probably the less said, the better.

The district court decision found that Allstate actively referred unsuspecting claimants to its Sterling shops — even when those shops were providing poor service and some were given failing marks by Allstate’s own surveys.   Yet, Allstate had a financial interest in making Sterling profitable, so claims representatives continued to shove insureds and third parties to the Sterling shops, many of whom naively patronized the collision repair facilities on Allstate’s recommendation.  As a result, the court had no trouble appreciating the Texas Legislature’s concerns and desire to protect consumers.

Allstate claimed that the statute violated the Dormant Commerce Clause of The U.S. Constitution.  I know, I know, lawyers everywhere are now dusting off their Con. Law textbooks — except for the 11 of you legal geeks who actually dwell on the DCC and use it daily (I’ll bet you have pocket protectors).  Allstate/Sterling’s argument was that the Texas statute had a negative impact on interstate commerce because it discriminated against large insurers and chains of collision repair facilities in favor of local ones, and was passed to accomplish that discriminatory goal. 

Needless to say, there are many sexier issues being presented to the Justices than the DCC, so it was always likely that our highest court would pass on this one.  But, you just never know with the Big Black Robes.  The bottom line, however, is that the U.S. Supreme Court “just said, NO” to Allstate and Sterling.  Now Texas can go back to doing what it does best:  producing oil so, hopefully, our gas prices will go down.

The Automotive Service Association (ASA) deserves a big round of applause for all of its efforts in supporting the Texas Attorney General and by its action intervening in the case on his side from the beginning.  Most people probably don’t know that the Texas A.G.’s office didn’t even file a Brief in response opposing the the Petition for Certiorari.  (I don’t mean that critically, just stating facts.)  Fortunately, ASA did — and the organization deserves considerable credit for its efforts and all the money spent to help support a law keeping insurers out of the repair business and keeping collision repair businesses focused on serving the interests of its true customer, the consumer.

Technorati Tags: insurance, collision repair, Allstate, Texas, law, Supreme Court

Although losing twice before in a Texas district court and before a 5th Circuit appellate court, Allstate Insurance and Ken Starr are hoping to convince the U.S. Supreme Court to take review of the Constitutionality of the Texas statute prohibiting insurance companies from owning collision repair shops.

Although Federal District Judge Ed Kinkeade wrote a compelling and well-reasoned decision identifying the inherent conflict of interest involved with insurers owning body shops, which was affirmed by the 5th Circuit, Allstate didn’t like the answer.  Making some of those moth-eaten arguments most of us haven’t seen since law school, Allstate will once again argue that the Texas law violates the Dormant Commerce Clause of The Constitution.

 Well, maybe Mr. Starr will fair better back in Washington, D.C. where his “starr” quality may have more appeal.

Allstate v. Abbott, U.S. Suprme Court Docket

The third circuit ruled that allowing a policyholder to pursue a claim against his disability insurer brought under the federal Racketeer Influenced and Corrupt Organization Act does not run afoul of the McCarran-Ferguson Act.  Weiss v. First Unum Life Insurance Co. No. 05-5428 (3rd Cir. 2007)

Apparently, NJ state insurance laws do not provide, nor do they prohibit, a private right of action for a policyholder to bring a claim against the insurer.  As a result, the Third Circuit interpreted the federal RICO act as complementary of the state’s laws.  Here is the panel’s closing thoughts on the issue. 

	04-05-07 | New York collision repair shops and consumers are tired of insurers trying to push them to give business to the insurers’ “preferred” shops. Shops allege insurers use any tactic to coerce consumers to patronize their contract shops. After being accused of committing fraud, one shop owner threw down the gauntlet and filed suit against Progressive for $40 Million.
http://www.fox23news.com/mediacenter/local.aspx?videoId=57363

NY appears to be following closely behind CT on its interest in protecting consumers and halting the coercive practices of insurers.  “Steering” is the term used to describe an insurer’s attempt to direct claimants to shops with which they have an agreement.  That agreement doesn’t necessarily contain terms that are good for consumers.  But they are always full of terms that are great for insurers, like ensuring that shops agree to repair vehicles per insurance company dictates and to completely indemnify the insurer from any fall-out related to the claim.

Welcome to AutoRepairLegal.com

Collision Repairers and Consumers should all know about the launching of AutoRepairLegal.com, a website enabling people to peruse the laws and regulations of a particular state, and to submit information for upload.

Good Samaritan law may not apply - USATODAY.com

A colleague forwarding this story said:

In Germany you are required by law to stop and help to the best of your abilities.  In the US apparently you don’t and now after reading this, I’d definitely think twice or three times before I even consider about helping anybody.

And we wonder why people in the U.S. hesitate to stop and give help to others?

As if buying a car is not complicated enough, at least one BMW dealer in California has added yet another layer of complication to the activity.  A well-spoken blogger in California wrote about her attempted car buying experience that culminated in a “No Sale” all because the dealership refused to sell her the vehicle unless she first provided her right thumbprint.

In her quest to purchase a BMW X3 (a nice vehicle, I might add), Lorna furnished her driver’s license and marriage certificate (her name had changed), and her credit report was run by the dealership — although she asserts it was done without her knowledge.  I’m not suggesting this is untrue, but she must have supplied her social security number on the purchase application (the forms usually have a pre-printed section requiring one to fill out that information) or the dealership would have had to have obtained her SSN somehow to run the credit history.  Perhaps California is a state that still has a driver’s social security number stamped on its face.  (I have always been puzzled by the fact that Departments of Motor Vehicles and state universities thought it was a great idea to use one’s SSN as a driver’s license or student identification number.  They simply helped create the identity theft debacle now at hand.)

Nonetheless, Lorna, of lornamatic.com, discovered that the BMW dealership refused to sell her the X3 unless she voluntarily provided her right thumbprint and authorized the dealership to obtain her DMV Driver’s License Record — which, of course, would contain a copy of her right thumbprint that she had to supply to the California DMV to obtain her driver’s license.  Lorna was doubly surprised to find that the dealership intended to keep the copies of her personal information, but the personnel there were unable to provide her with information regarding the company’s privacy policy and data security procedures.

I was intrigued by Lorna’s experience, so I took a look to see what I could find about California’s laws on the subject.  Here’s what I discovered:

1. The California Constitution, Article I, Section 1, ensures citizens of that State a right to privacy.
2. California has enacted its Information Practices Act to provide protection from the dissemination of personal information.  Cal Civ Code § 1798.81.5, however, does not apply to activities taken by “(4) An entity that obtains information under an agreement pursuant to Article 3 (commencing with Section 1800) of Chapter 1 of Division 2 of the Vehicle Code and is subject to the confidentiality requirements of the Vehicle Code.”
3. Cal Veh Code § 1808.5 states that, “Except as provided in Section 22511.58, all records of the department relating to the physical or mental condition of any person, …are confidential and not open to public inspection.”
4. Perkey v. DMV, 42 Cal. 3d 185; 721 P.2d 50; 228 Cal. Rptr. 169 (1984) held that the California DMV could properly require the provision of a thumbprint as a prerequisite to obtaining a driver’s license, but that the the thumbprint was confidential pursuant to the California Vehicle Code and the Information Practices Act. 

While in the past this provision has generally been applied to protect the confidentiality of what might ordinarily be termed “medical” information — such as information relating to an applicant’s eyesight (see 55 Ops.Cal.Atty.Gen. 122 (1972); 26 Ops.Cal.Atty.Gen. 136 (1955)) — a reasonable interpretation of the provision affords protection of that portion of a driver’s license application that reveals the applicant’s fingerprint.

Such an interpretation does not conflict with the statutory language because a fingerprint clearly relates to the “physical condition” of the applicant. Also, it furthers the general underlying purpose of the provision, which is to protect the confidentiality of information revealed by a driver’s license application where exposure will improperly infringe the applicant’s privacy rights.

Id. at 194, 721 P.2d at 55, 228 Cal. Rptr. at 174.

So, now we know that her thumbprint could not be obtained by the dealership from the DMV indiscriminately, the operative question is whether she can consent to the release of that personal information.  It seems highly likely that she can, which again raises a question as to the dealer’s personal information data privacy and security policy.  Clearly the dealer has an obligation to protect the information Lorna provided to it as a requirment of the Information Practices Act.  Had the dealer obtained information about her from the DMV, then the dealer would have to maintain the information securely as a requirement of the Vehicle Code.

These, of course, are only my observations and I would welcome any additional information or thoughts from my colleagues who practice in California.  Lorna’s experience is just a little too much like living in a totalitarian regime for my taste.  After all, if we weren’t so busy collecting all of this information about people, we wouldn’t be able to use it to pose as the upstanding citizen that the data collection says we are.  Don’t forget, Big Brother is watching you.Š

Every new lawyer who has ever worked in a firm knows the terror of potentially writing a memorandum, brief, or making some representation of the status of a statute or case that is relied upon by others that turns out to be — well — wrong.  I’m not talking of distinctions or hair-splitting about the case; I’m talking about cases that have been overturned, vacated, or heavily discredited and statutes that have been repealed or superseded.  That’s a new lawyer’s nightmare and, for the obsessive-compulsive in the rest of us, that concern never quite goes away.

Apparently, that concern didn’t register with insurance representatives lobbying Connecticut’s Insurance and Real Estate Legislative Committee when they argued the Committee should not approve legislation drafted by the State’s Attorney General, Richard Blumenthal, to make the State’s “steering” law stricter.  Three different insurance representatives told the Committee that a New York statute N.Y. Ins. Law § 2610 with similar language had been stricken as an unconstitutional violation of insurers’ right to commercial speech.  What each of them neglected to tell the Committee, however, is that the District Court decision making that statement had been vacated, and, after several appellate court decisions, on remand the District Court had issued a different opinion refusing to enjoin the NY Department of Insurance from enforcing the statute, refusing to rule on the insurers’ First Amendment claims, and dismissing the lawsuit.

Even more troubling, the District Court’s new opinion reiterated the Second Circuit’s finding that insurers could not challenge the NY statute on facial grounds, indicating that the court’s original finding of a constitutional violation regarding the statute itself was in error.

The Second Circuit explicitly rejected a facial challenge to § 2610(b). That court noted, “to the extent that the parties [] present a facial challenge to § 2610(b), it is an ‘overbreadth’ challenge, and such a challenge cannot lie with respect to a regulation of commercial speech.” Allstate II, 261 F.3d at 153

Allstate Ins. Co. v. Serio, 2003 U.S. Dist. LEXIS 13541 (D.N.Y. 2003)

In other words, the insurance representatives’ statements were gross misrepresentations of the status of (existing) New York law. 

I guess I’m shocked because I wouldn’t dream of stating something to a government entity – certainly not something as damning as a violation of The Constitution — without checking, rechecking, and re-rechecking to make absolutely certain it was true.  But, when no one holds you accountable, I guess you feel that sloppy information presentation is perfectly acceptable.  If this is any demonstration of how well state regulated insurance operates, insurers can kiss the McCarran-Ferguson Act goodbye. 

Anyway, after all of these legal decisions, the NY Department of Insurance issued Circular 14 on December 4, 2003 plainly stating that the steering law was in effect and that it would be enforced per the interpretation of the NY Court of Appeals’ decision.  Seven months later in June of 2004, the NY DOI’s General Counsel issued an opinion that insurers would be in violation of the steering statute if they informed claimants their vehicles could only be repaired at a facility certified by the claimants’ auto manufacturers.

Yeah, that’s really a statute that was struck down for its unconsitutional language. 

The Allstate v. Serio cases, NY DOI Circulars, and NY DOI Opinion can be accessed via links below:

Š (more…)

Life is a highway.   Yes, it certainly is, and because of that, the law and cars seem like such a natural fit.  After all, you have rule framework for driving a car on any given highway – just like you have rule framework for being a citizen, living in a given place, and pursuing happiness.  The actual and metaphoric highways mesh.

Satisfaction Surveys are Just Big Lies:

Stephanie West Allen at the idealawg posts an insightful look at consumers’ responses to satisfaction surveys.  Do clients tell the truth when surveyed about satisfaction? The brain knows and it might be telling.   The study West Allen cites to notes that people often fail to tell the truth when responding to satisfaction surveys.  There is an interesting adjunct to West Allen’s post which is the issue that our bodies and brains often know and react to things long before our conscience knows anything. Anyone who has read Malcolm Gladwell’s “Blink” knows that the adaptive unconscious is usually far out in front of our laggard conscious minds when it comes to making determinations on anything.  Therefore, the question that arises about people’s responses to satisfaction surveys is whether they are intentional or unintentional falsehoods.

Which brings me to a very important issue.  Automotive News($) published a recent J.D. Powers survey involving only 5,752 consumers who had been involved in collisions and addressed their satisfaction about the repair experience.  The survey results suggest that people are happier with the collision repair experience when using insurer “direct repair program” shops or when they have received a referral from an insurer.  Part of the rationale given in the story in Automotive News for why consumers feel better about insurer recommended repair shops is that insurers investigate them and insist that they have the latest model equipment and best-trained technicians.  Holy cats, is that a sell job, because it is absolutely untrue.

While insurers put things in these direct repair program documents that say a repairer has to have the right equipment and training, that’s all for show in the event the AG’s office or some other consumer protection group gets hold of them.  The bottom line is the insurers could absolutely care less if you are using chains behind your repair garage to pull vehicles’ unibodies into alignment.  Insurers only care about getting a repair job done as cheaply as possible, and, often, if they can twist the repairer to perform an unsafe, but cheap, repair, they do it.  I would love to tell lawyers how many times I have seen insurance company representatives write an estimate of repair that calls for the “clipping” of the vehicle.  Clipping is the industry slang for “cutting the car in half horizontally, throwing away the damaged half and welding a salvage yard total-loss half onto the consumer’s vehicle, and handing the customer the keys.”  Ta-da!  And guess, what folks?  In the vast majority of states, that practice is not illegal.  Unsafe?  You bet.  Illegal?  No.  And the insurers’ attitudes about practices like these?  “No one says we can’t do it, and if it’s going to save us a buck, we’re going to do it.”  and my personal favorite, “We don’t repair cars, we just pay to have cars repaired.” – even though insurers dictate how vehicles are to be repaired to collision repair shops every day of the week.  If you are a collision repair shop that stands up for the consumer, insurers make your life a living hell.  And, they make the lives of consumers who try to patronize the responsible collision repair facilities hell as well.

You can see, therefore, the complete lack of value of the J.D. Powers survey.  The only reason those customers are satisfied with the insurer’s recommendation is because the insurers tend to leave shops in their “networks” alone and don’t play games with them by browbeating their customers, refusing to pay for necessary repairs, deliberately delaying sending an adjuster to review the damage for two or more weeks, and other lovely games.  And why do they leave the network shops alone?  Because those collision repair shops have signed documents that trade away many rights of the customers (unbeknownst to the customers), agree to use inferior parts, use salvage parts (including salvage airbags), and agree to fully indemnify the auto liability carrier for anything (negligence, intentional acts, diminished value, attorney fees, titling problems — oh yes, some of those clips are “front end” clips.  That means the VIN on your dashboard is a salvage vehicle VIN and no longer matches the registration or title of your car.)  Anyone who takes the insurer’s recommendation for a collision repair shop is asking for trouble.

Along those lines, Eric Turkewitz of the New York Personal Injury Law Blog posts about Anderson Cooper’sstory on Allstate Insurance and its aversion to actually paying claims   No, really?

John Shortell of the BodyShop Solutions blog has an enlightening post called More From Inside Nationwide.  A Manifesto That Threatens Termination for Appraisers Who Fail to Get With The Program about the realities of how insurers treat consumers, collision repair facilities, and their own employees.  Shortell even posts an email from a person identified as Paul J. Connell, Materials Damage Claims Associate Director ratcheting up the pressure on claims personnel and body shops.  Anyone who practices in the personal injury area will find Shortell’s post eye-opening.  As a final thought, PI lawyers, are you aware that many insurers use the cost to repair the vehicle as the basis upon which they offer soft tissue bodily injury claims settlements? So, you can see the additional incentive insurers have to keep repair costs as low as possible. 

Accidents:

In my day, babysitters earned about a dollar an hour.  No one paid social security, worker’s comp., or insurance – but that’s probably changed.  And if it hasn’t, maybe it should.  The Orange County Personal Injury Lawyer blawg recounts a sad tale of a babysitter who hit another car killing someone while picking up his employers’ youngest child from school.  Needless to say, the decedent’s family sued the babysitter but also sued the parents/employers.  Vicarious liability isn’t anything new, but how many times do even lawyer parents, desperate for a night out, stop to think, “what are the potential ramifications of this employment activity?”

David Giacalone has some meaningful information for people involved in accidents who want to handle the matter without the assistance (and cost) of an attorney.    DG must have a great sense of humor as the blawg is titled:  “shlep - the Self-Help Law ExPress”.  He also has an excellent post on how consumers can protect themselves in a used car purchase.  Although, Giacalone’s post contains much useful information for buying vehicles, the gigantic problem with the whole used car world is that there are NO standards dictating how vehicles are permitted to be repaired and NO used motor vehicle standards dictating “lifecycle motor vehicle safety” throughout a vehicle’s lifetime.

 J. Craig Williams from May it Please The Court reminds us that if you ski and get hurt, nurse your wounds and go home.  Assumption of risk is still the word of the day on the slopes, and suing the ski resort just makes you look stupid as well as clumsy.

Just Pull over and Keep Your Mouth Shut:

Carpundit says it like it is, and I just love that.  CP reminds sassy Harvard Law students that, in fact, Big Daddy Brother does have jurisdiction over any punk on the road and it really doesn’t matter if it’s a state road or a local one.  CP’s tip of the day for drivers: “when you see the blue lights flashing, pull safely to the right shoulder and come to a complete stop.  In the words of Chris Rock, If the police have to come and get you, they’re bringing an ass kicking with them.”   Jamie Spencer does a neat job of digging through the law to find out if a client committed a traffic violation by performing a U-turn at a location posted only “No Left Turn”.  I have to admit, trying to piece together state law and local ordinance is often a nightmare, and it makes for some wacky results.  This is an interesting read over at the Austin DWI Lawyer blawg.

Go Green!   The Green Business News brings us news about recent enactment of laws in the U.K. that require vehicle manufacturers to pay for the safe and environmentally appropriate disposal of motor vehicles. Autoblog reports that the President has finally drafted some fuel economy legislation which would allow regulators to demand higher mileage standards from automakers.

Government Officials We Think Have Drive or Have Job Openings

 The AutoProhpet lauds Michigan AG, Mike Cox, for doing what every state should do — ban those stupid (and inaccurate) red-light camaras.  Boy, talk about a total walk around the hearsay rule.

The Antitrust Review points out a bunch of job openings in that easy-to-parse-through land of antitrust law.  In addition to which, the AR tells us that the European Court has upheld a Beer Cartel Fine.  Look, if the U.S. can finally “free the grapes” and let wineries ship directly to consumers, then I think the European consumers should be entitled to “free the hops.”

Revelations (Oh, my goodness, it’s just what I wanted):

GAL of the Greatest American Lawyer has toyed with revealing his (and I do believe it is a “his”, although GAL may be more of a hint than one might imagine!) anonymous self.    There was even a contest, closed yesterday, winners to be announced early this week.  GAL begged not to be outted by those in the know until post-revelation.  OK, I’ll give you all a real heads-up.  It’s me!  Why do you think I’m hosting this blawg review?

Also, anyone interested in what interests gay people in the world of automobiles must visit Gaywheels.com which bills itself as the “gay-friendly automotive resource”.  The Truth About Cars has a fun dish on some woes at ToMoCo (you know, Toyota Motor Co.) involving “memogate“.

Vorsicht bei der Abfahrt  (Danger, Will Robinson, Danger!)

Overlawyered keeps us up-to-date with warning labels the whole family can enjoy, while Jonathan B. Wilson comments on a Georgia Social Networking Bill designed to keep minors safe.

Joe Sherlock of The View From Behind The Windshield warns about property loss damage that can occur to your car just by going through an automated car wash.

Nicole Black of Sui Generis–a New York law blog warns of issues involving ethical issues involving NY’s lawyer advertising rules and their application to a home office. Diane Levin of Death and Taxes Blog talks about her thoughts on Associate Salaries.

Heresy (I prefer to take the bus, thank you very much):

“Blessed are the few of words, for they will be welcome anywhere.”  Lawyers talk too much (just look at this Blawg Review!)  If you don’t think so, marry one.  Imagine if other professions bored spouses and friends with the minutiae of earning their daily bread, e.g. “Then I typed the letter “q”, then a “u” . . .” or “I put the strands of DNA, that I had previously teased from the extracting solution, into a test tube . . .”  Honestly, how does the rest of the world stand us?  But now I have a hero.  His name is Donald A. Van Sullehem.  And courtesy of the (new) legal writer,  Here is his elegant response to a brief, and one which, if I weren’t so much of a coward, I would have written in some of my own cases.

Brief in Opposition to Plaintiff’s Motion for Reinstatement
Plaintiff has got to be kidding.
Respectfully submitted, Simpson & Moran, By Donald A. Van Sullehem, Attorneys for Defendant, Birmingham, Mich.

Basquette talks about why blogging isn’t for everyone in put down the blog and step away from the computer, ma’am… and Charles H. Green emphasizes the power and beauty of silence at the Trust Matters blawg.

By a whisker (as in, “I just missed that guy by a”):

Julian Ku discussed the hang-up concerning the words “annihilation” versus “genocide” in the debate over the mass killings of Armenians during the Ottoman regime in Turkey.  Ken Adams of AdamsDrafting really splits hairs over the use of the words “termination” or “expiration” in contract drafting. 

Warm and out of the wind (if it’s a convertible, the top is up):

The Wired GC takes aim at the Government Accountability Office for being miffed that the DHS counsel wants to review documents before production and be present at employee depositions. Stephen M. Nipper of The Invent Blog gives us the happy news that PayPal is trying to compete with Google’s new “Checkout” program by offering a $15 rebate on goods purchased from participating retailers.  Luckily for us, some of those retailers include purveyors of law books and legal aids.  Where the heck were these companies when I was in law school paying full bore for every book I had to use?   Sox First continues to report that Citigroup has its hands full trying to defend itself against the allegations of the Australian Securities and Investment Commission that it engaged in insider trading and failed to manage conflicts of interest.

Grievances (Why the hell didn’t you fill up before we left?):

J. Daniel Hull of What About Clients?™ flares about whether lawyers are delivering real services to clients in an economy that now seems exclusively about selling services on a global level.  Hull’s comments immediately reminded me of a fascinating discussion my friend Leon Polott of 5iTech and I had when we were the Chair and Vice Chair respectively of the Cleveland Bar Association’s International Law Section.  At the time, Leon and I discussed the client zealous representation and potential ethical issues arising from the ever-present (and in use) bottle of Vodka on the meeting table in a Russian negotiation.  At what point should there be a different code of conduct and professional responsibility for lawyers representing clients internationally?   

S. Alan Childress points out the grandstanding, childish, and jerry-springerish activities that some judges have begun to exhibit in their occupation of the bench. While paid participants in the legal world continue to pay lip-service to concepts of professionalism and collegiality, the migration of the practice of law to the business of law rewards those who can draw the most dollars by their outlandish behavior.

My own grievance, of course, is that issues I care about are once again being upstaged by that minx, Anna Nicole Smith (aka Vicky Lynn Marshall).  It’s bad enough that the U.S. Supreme Court deemed her dispute over her ancient deceased billionaire husband’s estate to be more review-worthy than a genuine issue over the denial of due process and question of the propriety of a state supreme court justice casting the deciding vote overturning a billion dollar consumer judgment against one of his supporters, State Farm.  Now, the week I am hosting blawg review, she dies, leaving questions about the cause of death, the paternity of her new baby, and the quagmire of her former husband’s estate and her own.  As a former probate, trust, and estate trial lawyer the latter is undeniably appealing to me.  Nonetheless, couldn’t ANS/VLM have done this on someone else’s watch?  I think I will have to take this personally.

Tune in Next Week

Blawg Review has information about next week’s host, and instructions how to get your blawg posts reviewed in upcoming issues.
 

It is a great honor to be quoted in a brief to the U.S. Supreme Court.

Congratulations to SCOTUS which was cited as well.

It’s comforting to know that others are as concerned as I over the U.S. Supreme Court’s refusal to hear the genuine Due Process problems raised by Avery.

Avery Amici Curiae Brief

The U.S. Supreme Court tanked any hope of Due Process for the Avery plaintiffs when it denied their Petition for Certiorari today.

Despite the filing of a brief Amici Curiae from 12 Organizations Concerned about the Influence of Money on Judicial Integrity, the high court would rather spend its time discussing the merits of whether Anna Nicole Smith a.k.a Vickie Lynn Marshall should get her millions. These were the issues presented in Anna Nicole’s, er, I mean Vickie Lynn’s case that the Supremes deemed supreme-worthy. The issues are about the application of state probate law. Well, I guess the good news is that, if the U.S. Supreme Court won’t pay attention to you while you are alive, you just might get a crack when you’re dead.

T Tags: Law, Blawgs, Supreme Court

Justice Karmeier may be getting a surprise — and it’s not more money for his campaign coffers. Instead, it may be a summons to account for his actions before the Illinois Judicial Inquiry Board.

Common Cause filed a complaint Tuesday (February 7, 2006) asking the Illinois Judicial Inquiry Board to investigate Justice Lloyd Karmeier’s participation in the decisions overturning the two biggest class action verdicts in Illinois history, Avery v. State Farm Mutual Insurance Co., 216 Ill.2d 100, 835 N.E.2d 801 (2005) and Price v. Philip Morris, Inc., No. 96236, 2005 Ill. LEXIS 2071 (Ill. S.Ct. Dec. 15, 2005).

I was gratified to discover that I am not the only person outraged by what I see as the inappropriate participation of Justice Karmeier in these decisions. Independent film director Wayne Ewing has released his documentary “Benched: The Corporate Takeover of the Judiciary” about the contentious election and the corporate interests that buoyed Lloyd Karmeier to the Illinois Supreme Court bench. Common Cause, likewise, was pointed in its assertion that his participation in these decisions violated Illinois’ judicial cannons.

Common Cause spotlights a glaring issue with Karmeier in that he participated in Avery when it seemed he knew his vote was imperative to overturn the case, yet he recused himself from participating in the Gridley v. State Farm Mutual Insurance Co. decision bacause the necessary majority already existed to make the case disappear without his vote.

The Common Cause complaint is supported by legal ethicist Geoffrey Hazard, Jr., which means that, with Monroe Freedman’s agreement, the gurus of legal and judicial ethics are stacked up against Justice Karmeier. More damning for him, however, is the assertion on page 4, footnote 1 in the CC complaint that:

In response to a 2001 request by the then President of the Illinois State Bar Association to the Chair of its Bench and Bar Section Council, a subcommittee was appointed to develop standards defining an “excellent” judge. Justice Karmeier became Co-Chair of that subcommittee and co-authored the standards, which included the statement that,
“A judge must always avoid even the appearance of bias or injustice because confidence in the entire system of justice is diminished when any single judge engages in conduct that lowers public trust in the fair and impartial administration of justice.”

I guess that means Karmeier is not an excellent judge, by his own standards. Or maybe it’s easy to espouse ideals until someone comes along with enough money to put them to the test.

HT to Jerry Brown

They’re at it again. BMW and Nissan are wrangling over which automaker owns a letter of the alphabet.

BMW recently sued Nissan and asked a Canadian court for injunctive relief for Nissan’s alleged use of BMW’s M trademark in promotions for the Infiniti M35 and M45. BMW is crying foul as Nissan has used a capital M (which is strikingly similar to the German maker’s) and a Nissan logo in its Canadian ad campaign hyping “the M is coming”. Automotive News($) reports the German car company claims it has “invested at least $260.7 Million internationally over nearly 30 years promoting its M series.”

What? That’s all? $260.7 Million internationally for almost 30 years? I have to wonder if somewhere along the way, there has been a mistranslation of Milliarden, which in German is billion not million. Otherwise, we all need to take lessons in marketing from BMW.

But back to the topic. Let’s not forget that this is not the first time these two brands have quarreled over a letter of the alphabet. The last time, it was over Z and Nissan was in the driver’s seat doing the complaining. Back in 2002, Nissan sued BMW for Lanham Act violations for naming its sports car the “Z3″. Nissan Motor Co. v. Bmw Holding Corp., 64 U.S.P.Q.2D (BNA) 1797, 2002 U.S. Dist. LEXIS 20744 ($) (D. Ill. 2002)

Plaintiff trademark holder, an automaker, sued defendant user (also automakers using a similar mark), alleging trademark dilution, infringement, and unfair competition under the Lanham Act, 15 U.S.C.S. §§ 1114 (l) and 1125(a) & (c), and pendent state law trademark claims.

Nissan didn’t make out so well last time, as BMW asserted a laches defense and argued that Nissan ZZZZed on its rights. Nissan’s current use of the M almost looks like an attempt to get back at BMW for Z-swiping. Unlike Nissan, however, BMW was only catnapping and didn’t wait until Nissan was well into production before letting the fur fly.

T Tags: Automotive, Cars, BMW, Nissan

If the expression “worser and worser” means anything outside of the world of Lewis Carroll, then it certainly applies to the participation of Illinois Supreme Court Justice Lloyd Karmeier in the decision overturning the $1+Billion decision rendered in favor of consumers in Avery v. State Farm Mutual Ins. Co. According to the Avery Plaintiff’s Petition for Certiorari filed with the U.S. Supreme Court, not only was Lloyd Karmeier’s election campaign heavily funded by direct and indirect contributions from the insurer and its associates, but Karmeier was actually recruited to run for the vacant seat on the Illinois Supreme Court bench by someone connected to State Farm. As a result of State Farm’s involvement in Karmeier’s election, Karmeier’s refusal to recuse himself from participating in the decision, and his role as the deciding vote-caster in that decision, the Avery Petition asserts that they were stripped of Due Process.

The Petition for Certiorari alleges that two people connected to the insurer, Bill Shepherd and Ed Murnane, and organizations founded by Murnane, including the Illinois Civil Justice League and its political action committee JUSTPAC, were well aware of the pendency of this lawsuit and the enormous economic impact it would have if the appellate decision were permitted to stand. It also quantifies massive contributions to Karmeier’s campaign from State Farm, JUSTPAC, and the Illinois and U.S. Chambers of Commerce.

Although the ICJL characterized support of Karmeier as a tort reform and clean-up-the-judicial-hell-holes issue, it really only seems to care about cases turning out in a pro-business fashion. Here is a telling quote from ICJL’s JUSTPAC page:

JUSTPAC will work to provide support to judicial candidates who are committed to changing the judicial environment in Illinois, candidates who want to fix a broken system and restore honesty and fairness to a system that too frequently has been controlled by greedy personal injury and class action lawyers.

ICLJ doesn’t appear to actually care about what is objectively fair, despite its mission statement to the contrary. Hypocrisy is the death of justice, and the manner in which the Avery result was contrived isn’t justice. It was the hubris of manifest destiny.

Let’s take a look at capitalism gone awry and wonder how consumers can ever get justice in the “honest and fair system” some of these organizations desire to create.

According to the Petition, Karmeier raised and spent at least $4.8 Million in the election campaign. Here is how much of the contributions broke down as presented by the Petition:

State Farm and people/organizations directly connected with the lawsuit (employees, attorneys, Amici, and Amici attorneys) contributed $350,000;

JUSTPAC gave Karmeier $1,191,453 (which represented all but $500 in funds raised by the political action committee);

Illinois Chamber of Commerce contributed $269,338;

U.S. Chamber of Commerce contributed money to the Republican Party of Illinois of which $1,300,000 was funneled straight to Karmeier’s coffers. (If I understand the Petition correctly, State Farm employees served as Directors for both chambers.)

American Tort Reform Association contributed $415,000;

Illinois Coalition for Jobs, Growth and Prosperity gave $150,000;

Illinois Insurance Political Committee contributed $6,000. (The Petition says that State Farm was a member of and contributor to each one of these three additional contributors.)

Looking at the numbers, it is clear that Karmeier received $350,000 from persons/companies with a direct financial interest in the outcome of the suit, (i.e. a party and its supporters.)

Add in the money from JUSTPAC (which the Petition alleges not only had a connection to State Farm but is associated with the person who recruited Karmeier to run – at least in part, because he felt the Avery decision was unfair and should be overturned), the Illinois Chamber of Commerce, and the U.S. Chamber of Commerce (both of which ostensibly had State Farm employees serving as Directors) and you arrive at a whopping $3,110,791.

Put that together with the money from each of the three entities of which the Petition says State Farm was a member and contributor, and we top out at $3,681,791 – just about 75% of all of the money contributed to Karmeier’s campaign.

Now, I certainly don’t think that every penny of almost $4 Million was actually contributed by State Farm, but the involvement of a party to a significant pending case with so many of the major contributors to the campaign of a new Supreme Court Justice does more than raise a few eyebrows. It smells. And the smell is not a good one.

As I have said before Karmeier simply had no business participating in the Avery decision, and the fact that he cast the deciding vote that wiped the decision away as if it had never existed, is an absolute travesty of justice – as well as what I see as a blatant ethical violation, and in this I apparently have company from the authors of the SCOTUS blog.

Contrast the recruiting of Karmeier, the funding outlined, Karmeier’s refusal to voluntarily recuse himself from the Avery panel and absolute refusal to recuse himself when asked by one of the parties, the fact that he was not a member of the Supreme Court bench when the matter was accepted for review, briefed and argued, with Karmeier’s own statements quoted by Kevin McDermott in his article “All Eyes on the Fifth” in Illinois Issues, September 2004, which McDermott attributed to Karmeier’s campaign website:

I think I am typical of most people from Southern Illinois when it comes to our system of justice. We want it to be fair. We want it to be impartial. We want a level playing field . . . We don’t want any hints or suggestions that our system of justice is being used or influenced by powerful politicians or by lawyers or by any special interest group.

If this is Karmeier’s idea of being typical of people from Southern Illinois and of not having “any hints or suggestions that our system of justice is being used or influenced . . . by lawyers or by any special interest group”, it really doesn’t say much for the land of Honest Abe. I’m glad I live somewhere else.

Special thanks to Ray Lehmann who wrote to me looking for a copy of the Petition and ended up providing it to me.

Yesterday, the Plaintiffs in Avery v. State Farm Mutual Automobile Insurance Co. filed their Petition for Certiorari asking the U.S. Supreme Court to take jurisdiction to determine if Illinois State Supreme Court Justice Karmeier’s participation in the decision reversing the $1+Billion case against State Farm violated The Constitution. I have discussed this issue repeatedly (so much so that my sister just says “Avery” when she wants to get a rise out of me) here, here, here, and here. The issue before the Supreme Court, however, is well stated by the SCOTUSblog:

Should an elected judge, who accepts large campaign donations, sit on a case that directly affects the financial or business interests of the donors and their associates? Put as an ethical question, the answer would seem to be obvious: No. But the Supreme Court is being asked to rule on that question as a constitutional issue: does the due process clause create a duty to recuse in such a situation?

SCOTUSblog agrees with noted legal ethist, Monroe H. Freedman of Hofstra’s law school that the obvious answer to whether it is ethical for a judge to fail to recuse himself from sitting in judgment on a benefactor’s case is NO.

Perhaps now that the issue is receiving national attention by its appearance before the U.S. Supreme Court, the various Illinois grievance committees will actually look into what I see as a blatant violation of the Illinois Code of Judicial Conduct, Cannon 3 (Illinois Supreme Court Rule 63).

Despite State Farm Mutual Insurance Co.’s mea culpa disclosure that it failed to obtain salvage titles for vehicles it had previously declared a “total loss” and it’s agreement with forty-nine
States’ Attorneys General releasing State Farm from AG’s claims for consumer protection violations, the insurer is looking down the barrel of a loaded lawsuit. Pittsburgh Consumer Sues State Farm Insurance for Selling Salvage Cars Without Disclosure.

According to the Complaint, Plaintiff, Robert Beaves, paid $14,026.43 for a 2001 Honda Civic LX with 11,063 miles. Not only was Beaves told by the dealership that the vehicle had never been “salvaged, flooded, altered or otherwise damaged”, but Beaves’ attorney, Craig Thor Kimmel of Kimmel & Silverman P.C., says it was also “represented as a Honda certified pre-owned” Civic.

If the vehicle was sold as a “Honda certified pre-owned” car, then this is another black eye for the manufacturer certification programs. However, if this vehicle was sold to Beaves as a “certified pre-owned Honda” that may be a Civic of another color. Capitalizing on the CPO market for used cars, some enterprising companies offer certification programs that are advertised as enabling dealers to certify every car on their lots — irrespective of whether they meet the manufacturers’ certification standard. The key to these things is to know who is doing the certifying and what the criteria are for a passing grade.

Despite the dealer’s representations, the 2001 Civic had been previously declared a total loss by State Farm but was never issued a salvage title. Until now. Beaves unexpectedly received notification that the car had been wrecked and extensively damaged.

25. On or about September 15th, 2005, the Commonwealth of Pennsylvania, through the Attorney General’s office, advised Plaintiff that his vehicle had been the subject of an insurance claim before his purchase, and the damage so extensive, that it was supposed to be classified as “salvage” on the Title.

Now the State of Pennsylvania is going to oblige and turn Beaves’ clean title (representing something of real value) into a virtually worthless piece of paper. State Farm’s offer to make it right? $2,700 — not even remotely close to the retail value of a 2001 Honda Civic LX. In an interesting twist, Beaves had insured the vehicle through, you guessed it, State Farm. Kimmel’s firm has set up a website for others who may be in the same situation and wonders aloud whether State Farm is really acting like a “good neighbor”. What I want to know is if State Farm is going to refund part of the premiums Beaves paid, as the Civic was insured at a higher premium with its clean title than it would have cost to insure it as a salvage car.

While the various Attorneys General have marveled at State Farm’s unprecedented voluntary disclosure, it appears that what motivated State Farm was an earlier lawsuit alleging that the insurer’s failure to have these vehicles properly titled was deliberate. I will be discussing that issue and others with host Mike Harber and fellow guest Tony Lombardozzi on KVI 570’s Crash Talk Saturday, November 19, 2005 at 5:00p.m. Pacific Time. KVI 570 has streaming content, so log on and join us.

In yet another high profile story about when a member of the judiciary should not be permitted to sit in judgment, former House Majority leader Tom DeLay got his wish for a new judge. Why? Because the judge assigned to hear his criminal matter was a long-term democrat and had contributed $5,000 since the year 2000 to democratic candidates and organizations. Judge removed from DeLay’s criminal case - Boston.com

$5,000 over five years and a history of being a democrat? Yes, that’s all it took in Texas. Contrast that with allegations made by the Avery Plaintiffs in their dispute with State Farm over vehicle repairs made with aftermarket parts that Illinois Supreme Court Justice Lloyd Karmeier took well over $1 Million from State Farm and associates for his election campaign to claim a spot on the Illinois high court, yet he flatly rejected Plaintiffs’ request that he recuse himself from participating in the decision that blanketly reversed the $1 Billion+ judgment against his benefactor.

Something’s rotten in Denmark — er, make that, Illinois.

It seems quite clear that if contributions on average of $1,000 per year to your fellow party candidates and organizations and a long-term affiliation with a political party is enough to have a judge plucked from the bench for one case, then shouldn’t $1 Million+ in election funding traceable (as alleged by Plaintiffs) directly to a party that has over $1 Billion at stake in a single case be sufficient to have a judge sidelined? The disparate results in these two matters, particularly when significantly more damning allegations were made in the matter in which the judge was not removed, bring issues with our state justice systems clearly into focus.

There is a strong argument that our state court judges should be appointed rather than elected. As I have noted elsewhere, a majority of justices on the U.S. Supreme Court (as constituted prior to the recent resignation of Justice O’Connor and death of Chief Justice Rehnquist) had serious doubts as to whether any judge facing reelection can fairly decide a high-profile case. Throw in the fact that the barest hint of a lack of impartiality requires a judge’s automatic withdrawal from a case under Illinois’ Code of Judicial Conduct, Cannon 3 (Illinois Supreme Court Rule 63) into the mix, and there can be little doubt that the Avery Plaintiffs were denied Due Process.

Let’s hope the U.S. Supreme Court takes the Avery v. State Farm appeal. Otherwise, it may seem like politics and money are only seen as issues on matters in the south.
(more…)

The Indiana Supreme Court ruled last Thursday that a policy issued by Meridian Security Insurance Company did not require payment to its insured (first party) under the collision coverage provision for diminished value in addition to the cost of repairing the vehicle. In Allgood v. Meridian Security Insurance Company, 2005 Ind. LEXIS 976, the Indiana Supreme Court held that the insurance contract at issue was not ambiguous and did not require compensation that restored the insured’s vehicle’s value as well as performance and function.

Nonethless, the Indiana high court makes plain that third parties are invariably entitled to the payment of diminished value as part of the compensation necessary for them to be “made whole”.

Allgood is correct that under common law tort doctrines, the measure of damages recoverable from a tortfeasor is generally adequate compensation for the loss sustained. She is also correct that under Indiana law that measure of damages includes diminution in value.

Allgood at *4.

While insurers must be satisfied that companies issuing policies written like Meridian’s are relieved from paying diminished value to first parties under the collision provision, they can’t be thrilled with the Indiana Supreme Court’s unequivocal statement that victims of negligence are entitled to diminshed value as part of the necessary compensation to make those victims whole. This means that anyone who is not at-fault in a two or more vehicle collision in Indiana should make certain they demand complete compensation (repair cost and diminished value) from the at-fault driver and his/her insurer.

“[L]et the suspect judge be removed and one who is not suspect substituted for him. . . . [I]t is a very fearful thing to litigate under a suspect justice and very often results in the saddest outcomes.”

Thus wrote Henry of Bracton in 1270 on the absolute necessity of an impartial judiciary for the success of the judicial system. John T. Noonan & Kenneth I. Winston, The Responsible Judge, 278-279 (1993), quoting Bracton, The Laws and Customs of England (1270).

Which brings us full circle to Avery v. State Farm.

“Under the ABA model code, there is no doubt the Judge had to recuse himself.”

Those were the words Monroe H. Freedman, Hofstra law professor and renowned expert on legal and judicial ethics, said to me when I interviewed him about the Avery v. State Farm Illinois Supreme Court decision, rendered August 18, 2005.

After four years of waiting, the Illinois high court finally ruled on the Avery appeal, but the decision came after a very expensive and hard-fought election for a vacant seat on the State’s Supreme Court. That election only served to add another element of controversy in an already controversial case.

Justice Lloyd Karmeier, the winner of that pivotal election, was heavily funded by State Farm, the defendant in the $1 Billion+ aftermarket parts case, according to documents Plaintiffs submitted to the court. Karmeier took his place on the bench after defeating rival Gordon Maag, ironically, the Judge authoring the underlying appellate decision upholding the jury verdict but reversing some of the trial court’s damage award. Karmeier’s ascension to the bench transpired only after oral arguments took place. Nonetheless, Karmeier rejected Plaintiffs’ request that he recuse himself, despite his extensive funding by State Farm, its employees, lawyers, friends, and associates, and he actively participated in the decision overturning and dismissing the Avery case.

As Professor Freedman clarified, under the June 2005 proposed ABA Model Code of Judicial Ethics, a judge has an obligation to recuse him/herself when the judge’s impartiality “might reasonably be questioned.” This is the standard used in the Federal Judicial Disqualification Statute, 28 U.S.C. § 455, and it is also the standard governing the conduct of judges in the Illinois Supreme Court Rules, Code of Judicial Conduct, Rule 63(C)(1). According to Freedman, this standard is self-executing and demands the automatic recusal of a judge on his/her own volition.

So what exactly does it mean to say a judge’s impartiality might reasonably be questioned? According to the bible on the subject, Freedman and coauthor Abbe Smith’s Understanding Lawyers’ Ethics, 243 (3rd Ed. 2004), “might” means a “tentative possibility.” In other words, it is the barest hint, a whisper or feather of suggestion that steals across one’s mind. A litigant in our system is entitled to the purest determination of his grievances, and those in whom we entrust this terrible obligation must be impeccable. A lofty standard of this type is the highest compliment we can pay to those who serve in our judiciary and a breach of the standard is the cruelest form of despotism to the millions who must live with the results.

Several U.S. Supreme Court decisions have addressed whether the Due Process Clause of The U.S. Constitution is violated when a potentially tainted judge participates in a decision. Most notably in Tumey v. Ohio, 273 U.S. 510, 532, 47 S.Ct. 437, 444 (1927), the Court found that a judge must recuse himself if there existed a “possible temptation . . . which might lead him not to hold the balance nice, clear, and true” or when the matter “might create an impression of possible bias.” Additionally, the opinions of Justices O’Connor and Ginsberg in Republican Party of Minnesota v. White, 536 U.S. 765, 12 S.Ct. 2528 (2002) demonstrate that a majority of the U.S. Supreme Court has grave concerns about whether any “elected judge subject to reelection can decide a controversial case without violating due process.” Freedman, 248.

There is little doubt that State Farm had a significant interest in: 1) Preventing Judge Maag from winning the open Illinois Supreme Court seat; and 2) heavily subsidizing a candidate who might demonstrate his gratitude by helping to make a monstrously expensive case just “go away”. Given the fact that Justice Karmeier did exactly that, after Plaintiffs legitimately asked him to recuse himself, rather speaks for itself.

“When lawyers and litigants appear to be buying influence with campaign contributions, the appearance of partiality goes beyond the highly publicized case, tainting any case in which money may have passed.” Freedman, 249, indirectly citing a Justice at Stake survey (indicating that 76% of registered voters believe campaign contributions influence judicial decisions).

After the Avery decision was announced, I spent weeks answering questions from reporters and industry participants about it. What I found most noteworthy and saddest was the overall lack of faith in the judicial system, the uniform belief that justice had been sold to the entity capable of paying the most. After all, what are a few millions when you are playing for over one billion? That is exactly the message Karmeier’s participation in the decision sent to the person on the street.

As I have said before, perhaps the most appalling thing about the Avery decision was the majority’s idiotic and ill-conceived analysis about why the matter should be dismissed outright. It is embarrassing to the entire legal community that there is not an ounce of scholarship in the decision, the arguments do not tie together, and the court never condescends to tell us what standard of review it uses for any portion of its analysis.

There appears to have been an overall attitude of flippancy with which the Illinois Supreme Court handled this case. It began with the Supreme Court’s initial denial of Plaintiffs’ motion requesting Justice Karmeier to recuse himself from participation in the decision; then the hurried rethinking of whether the whole court should be involved and shunting the final decision off on Karmeier alone; Justice Karmeier’s automatic refusal to recuse himself; and, ultimately, the Court’s bizarre analysis attempting to justify the decision to dismiss.

I have to resort to The X-Files’ slogan for Fox Mulder, “I want to believe.” If there is no faith in the judiciary, can we actually say we have a justice system? The integrity of the justice system is far more important than the Avery decision, but Avery serves to show how far adrift we really are. Justice Karmeier, you should have recused yourself. Take a look at the Illinois Code of Judicial Conduct. You had a duty to do so. After all, someone might reasonably believe that you were beholden to State Farm for your current position. In fact, more than one someone does.

Some time ago I commented on the $10 Million class action settlement involving some insurers’ use of total loss valuations provided by CCC Information Services, Inc. (CCC). The allegations in the combined lawsuits were that insurers deliberately undervalued the total loss amounts of vehicles by using CCC’s data.

This action applies to people insured with one of the specific carriers who had a total loss claim between January 28, 1989 through July 18, 2005. The insurers involved in the matter are identified at the bottom of this post.

Information on submitting claims in this action is now available at www.TotalLossSettlement.com. Additionally, you can call 1-866-808-3608 to obtain information from the settlement administrator, The Garden City Group, Inc.

Allstate County Mutual Insurance Co.
Allstate Indemnity Co.
Allstate Insurance Co.
Allstate New Jersey Insurance Co.
Allstate Property and Casualty Insurance Co.
Deerbrook Insurance Co.
Encompass Indemnity Co.
Encompass Insurance Co. of New Jersey
Northbrook Indemnity Co.
American Casualty Co. of Reading, Pennsylvania
Boston Old Colony Insurance Co.
CNA Casualty of California
Colombia Casualty Co.
Commercial Insurance Co. of Newark, NJ
Continental Casualty Co.
The Continental Insurance Co.
Encompass Home and Auto Insurance Co.
Encompass Independent Insurance Co.
Encompass Insurance Co. of America
Firemen’s Insurance Co. of Newark, New Jersey
Galway Insurance Co.
Kansas City Fire and Marine Insurance Co.
National Buyer Insurance Co. of Hartford
National-Ben Franklin Insurance Co. of Illinois
Niagara Fire Insurance Co.
Pacific Insurance Co.
The Buckeye Union Insurance Co.
The Continental Insurance Co. of New Jersey
Not Fidelity and Casualty Co. of New York
The Glens Falls Insurance Co.
The Mayflower Insurance Co., Ltd.
Transcontinental Insurance Co.
Transportation Insurance Co.
Valley Forge Insurance Company

Plaintiffs in Avery v. State Farm have asked the Illinois Supreme Court to reconsider its August 18, 2005 decision overturning the $1 billion+ jury verdict. The basis for the rehearing request is Plaintiffs’ contention they were denied due process by the participation of Justice Lloyd Karmeier in the decision. Karmeier is a newly elected Justice who was purportedly well-funded by State Farm (directly and indirectly) in his campaign. Among other contributions that Plaintiffs say can be traced to State Farm, its employees, and its counsel, Plaintiffs cite to a JUSTPAC contribution of over $1.1 million. According to Plaintiffs, JUSTPAC is an organization founded by State Farm lobbyist and attorney, Bill Shepherd.

Plaintiffs had asked Karmeier to recuse himself from participating in the Avery decision prior to its release, but the new Justice refused. Instead, he cast the deciding vote, giving State Farm cause to heave a big sigh of relief.

Justice Karmeier’s decision to participate in the opinion was certainly a foolish one. Ethically, lawyers and judges are charged with the obligation to avoid “even the appearance of impropriety” and we must tread carefully in our comments and actions to ensure we do not undermine the public’s faith in the judicial system. What could possibly create the appearance of impropriety more than a justice participating in a decision overturning his alleged benefactor’s obligation to pay over a billion dollars to consumers? Additionally, what could possibly undermine the public’s faith in the judicial system more than the suggestion that justice is for sale, as long as you can pay enough?

Perhaps if the Illinois Supreme Court decision overturning Avery were scholarly and well-reasoned, there would be much less ammunition for Plaintiffs. As it stands, however, the Illinois high court turned out an extremely shoddy product that has more holes than swiss cheese, and to be given such a poor result — after waiting years for the decision and conveniently not before Justice Karmeier was elected — raises serious questions about the propriety of the opinion.

I have commented on this opinion here and here and just wanted to add another tidbit that relates to the IL high court’s idea that “like, kind, and quality” doesn’t mean equal to the original equipment manufacture parts. I stumbled across this and was amused to find that even according to insure.com, Illinois law requires “[n]on-OEM parts must be of ‘like kind and quality’ to OEM parts.” It just has to make one wonder if the Illinois Supreme Court even knows its own State’s law.

HT Collision Week

Insure.com Car Insurance - Official site.

Although a good number of very smart lawyers have commented on the recent Avery decision, I still am looking for a thorough analysis of the case rather than the knee-jerk reaction of “Oh, good” or “Damn”. Martin Grace, the RiskProf, and Evan Shaeffer at the Legal Underground probably have come the closest to something I can mull over. Overlawyered.com, which I expected to have a fulfilling discussion about the decision, just had a newsy blurb.

Yet, my biggest disappointment comes from Ted Frank in his post at Point of Law in which he remarks a bit on the decision but actually titled the entry “Good guys win Avery v. State Farm”. No one who has ever reviewed the evidence presented at trial could possibly say that the “good guys” won this case. Even the Illinois Supreme Court essentially said so-what-if-State-Farm-was-putting-crummy-inferior-parts-on-their -insureds-cars-and-”puffing”-about-how-great-the-parts-were. Come on, now, Ted. To the extent you are saying that the proper decision to reverse the trial court’s ruling certifying the class was made, I’m with you. But “good guys?” That’s really stretching it.

Yet, in all of this, I still want someone to tell me: What standard of review — for what portions of the decision — did the Avery court use? I have my own ideas about that, but I would be extremely interested in others’ opinions on the topic. I find it mind-boggling that a state supreme court sat on a decision this noteworthy for four years and couldn’t be bothered to set out the review standard it applied to various portions of the decision. I’m expecting great things from the legal scholars over at Point of Law. Consider this my request for analysis.

After a long spell of waiting, the Illinois Supreme Court finally decided the Avery v. State Farm Mutual Automobile Insurance Co. appeal of the $1 Billion verdict rendered against SF in 1999 for mandating the use of aftermarket parts in vehicle repairs for its insureds.

This is a lengthy decision, but here’s what it boils down to:

1) A national class should not have been certified for either the breach of contract or the consumer fraud claim.

2) No subclasses are entitled to recover as the jury instructions and verdict form were tainted.

3) The policies stating that “you agree” that State Farm can repair your car with either original equipment manufacture (OEM) or aftermarket parts mean that insureds have expressly authorized SF to repair your car with aftermarket parts, even if those parts are inferior to OEM and State Farms knows they are inferior.

4) Although never defined in the policy, the phrase like, kind, and quality is not ambiguous. It cannot not mean that aftermarket parts have to be of equivalent quality to OEM parts, because the betterment clause in the policy implies that there could be a situation in which a repair (presumably made with aftermarket parts) was better than a repair with OEM parts.

While I agree with the decision that a national class should not have been certified and, therefore, have no problem with points 1 and 2, the remainder of the majority’s opinion displays such repugnant reasoning that the decision is an embarrasment to the court. The dissent of Justice Freeman, with which Justice Kilbride concurs, is substantially better reasoned and is written in keeping with fossilized precedent.

After making the initial statement that the national class should not have been certified (for the contract breach issue — the majority later decides the consumer fraud claim certification was also inappropriate) because there was no single insurance policy at issue, the majority wonders if the verdict could be upheld for any subclass. It answers with a definitive NO on the basis that the jury instructions and verdict form stating that there was a single contract at issue was incorrect. (So far, so good.)

In what plainly is an attempt to avoid remanding the decision for further proceedings on the subclass issue (and I ascribe no motive here, whether good or bad), the majority delves into the nitty-gritty of the case, including reviewing evidence and interpreting policy language. (Now things get weird.)

One of the things I found notable in this decision is that the court oddly never identifies its standard of review — and it doesn’t appear to follow one.

In its discussions of the “you agree” policies, the court essentially says that each insured agrees that aftermarket parts can be put on the vehicle and extrapolates from that, that if those aftermarket parts are of inferior quality, you have agreed to let those parts be put on your car. The Illinois Supreme Court, however, fails to look at the standards for aftermarket parts required by its own State’s laws. The unfair claims handling section of the Illinois administrative code controls the types of replacement crash parts that insurers may specify for repair and requires that these parts be “of the same quality as the original part”.

Because contracts made in violation of the law cannot be upheld, it is inappropriate for the Avery court to suggest that insureds agreed to have their vehicles replaced with inferior parts (at least those insureds in Illinois). Moreover, other states’ laws expressly require the aftermarket parts to be of quality equal to or better than the original equipment manufactured part, e.g. California Code of Regulations, Title 10, Chapter 5, Section 2695.8 (g), an insurer that requires a policyholder to use non-OEM crash parts must warrant that the non-OEM crash parts are “at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit and performance.” Of course, applying the standards of other states’ laws is simply another argument demonstrating why a national class is not appropriate in this matter. Nonetheless, it underscores the ridiculousness of the Avery court’s assertion that insureds expressly agreed to have inferior parts used in their car repairs.

As Justice Freeman points out on this subject in the dissent:

The court avoids discussing the evidence presented by plaintiffs by holding that State Farm never promised any policyholders that repairs would utilize parts of equal quality to OEM parts. Thus, according to my colleagues, it does not matter whether State Farm was knowingly repairing its policyholders’ vehicles with inferior parts, because State Farm never promised to use noninferior parts. I suggest that the court has perhaps insufficiently considered the policy implications of overturning a billion dollar verdict on the basis that an insurer’s knowing usage of inferior parts is “good enough.”

(p. 72-73 of PDF opinion).

The dissent goes on to note:

The average person has no ability to bargain over the individual clauses of his or her auto insurance policy. The court ignores this fact, and seriously damages the credibility of its analysis by doing so. The notion that a policyholder has entered into a binding, factual admission simply by purchasing an auto insurance policy would merely be laughable if the court was not seriously suggesting it as a basis for overturning a billion dollar verdict produced by a two-month-long trial in which the evidence supports the conclusion that an insurer knowingly specified inferior crash parts for repairs of its policyholders’ vehicles.

The standards of those states expressly requiring replacement crash parts to be of equivelent quality to that of the OEM parts also turns the court’s analysis of the “Like, Kind, and Quality” policies on its head. Had the court considered the basis for this policy language, it would have reasoned that this language is there for the purpose of complying with the law of states requiring parts to be equivalent to OEM parts.

Shockingly, the Illinois Supreme Court turns to Florida, Texas, and Washington decisions to undergird its reasoning that the LKQ language merely means the parts have to be as good as the smashed parts they replace. These court decisions interprete their own insurance codes and state laws as to what standard an aftermarket part must meet. (This should have told the Illinois Supreme Court something.) But does the Illinois Supreme Court ever look to its own state laws to interpret this standard? No. Instead, the court goes to extreme lengths to develop a convoluted interpretation of what this policy language means.

Which brings us to an significant point. Why is this court interpreting policy language? Additionally, it is absolutely plain that the phrase “like, kind, and quality” is subject to at least two reasonable definitions. Therefore, the policy language must be deemed ambiguous, and, under the long-standing rules of insurance policy interpretation, must be construed against the insurer. The Illinois Supreme Court majority fails to apply this rule, which, at at best, destroys its credibility, and at worst, raises all of the ugly suggestions of bias, patronage, and conspiracy — all of which the majority hotly denies.

Lastly, the court appears to ignore significant evidence adduced at trial as to what State Farm understood and believed it owed to its insureds and the insurers’ own company philosophies. The differences between the evidence discussed by the Illinois Supreme Court and the appellate court are so stark that the courts’ opinions appear to address two entirely different cases.

This decision is deeply troubling. If the majority had stuck to overturning the certification of the national class and overturning the verdict because the jury instructions and verdict form were erroneous, this decision would be sound. In its zeal, however, the majority did not content itself with a decision based on sound judicial reasoning. Instead, it has set out on a frolic from which it may never be able to return.
Avery v. State Farm Mutual Automobile Insurance Co.

I am delighted to announce that my AutoMuse blog has been reviewed on the Small Business Trends PowerBlog Review. Small Business Trends: PowerBlog Review: AutoMuse

I am also delighted that AutoMuse has been chosen by Forbes for its “Best of the Web” awards. Thanks for the recognition!

For those who had an insurance total loss declared resulting from the use of a valuation product from CCC Information Services, Inc., there may be money coming your way. CCC and 15 of its customers have agreed to pay about $10,000,000 in settlement of class actions for undervaluing total loss claims. The settlement is subject to court approval, so until the judicial word comes down that the settlement is a “go”, everything’s on hold.

A provision of the proposed settlement requires CCC to hire an independent third party evaluator to periodically review the valuation product and to oversee valuation studies.

One of the places the announcement showed up promptly was in the Insurance Journal. What was truly revealing, however, were the comments to that article of insurance industry insiders detailing their own perceived unfair treatment with CCC in a total loss claim. Ouch.

CCC doesn’t have any information up on its site yet pertaining to the proposed settlement, but I’m sure the nice folks in the company’s public relations department would love to hear from you, so I’ve attached the link.

toledoblade.com

Ohio agrees to a spanking to the tune of $4.5 Million to settle its second class action suit for charging DUI offenders twice for the privilege of reinstating their licenses.

As if once wasn’t enough, the Ohio Bureau of Motor Vehicles continued to charge DUI offenders a $250 administrative fee and another $250 judicial reinstatement fee after a 1999 decision holding the State’s interpretation of the law as allowing both was erroneous. According to the BMV, the agency was convinced its position would be vindicated on appeal — so it just went on double dipping. With its unsuccessful appeals exhausted, however, the agency gets to refund the money it knew was being improperly collected. Apparently, the offended offenders get interest, so I sure hope the State put that money to good use.

What is particularly interesting about the trial court’s 1999 decision holding that the State’s interpretation of the law as allowing two fees was inappropriate is the mere fact that it was successful. When the DUI law was revamped in 1993, Ohio made the DUI process much stiffer, with an automatic administrative license suspension upon arrest, followed later by a criminal license suspension (and fines and/or jail) if convicted. Many people charged under the DUI law argued that the criminal conviction, with its fines and punishment, on top of the automatic administrative license suspension, with its fees and impounding of vehicle, constituted double jeopardy. The courts fairly consistently held that this arrangement did not violate the Fifth Amendment because the administrative interests of the State in immediately removing potentially dangerous drivers from the road was not punishment and was separate and unrelated to the State’s interests in criminally punishing offenders.

I always thought that was a sneaky interpretation because the hassle a person went through was significant, and the fees and payments that had to be made just to administratively get the license back were often higher than the criminal fines. (You had to pay the towing charges, and the fee to have your vehicle released from inpound, as well as the administrative reinstatement fees.) Therefore, I am surprised that the trial court in the first class action found that the interpretation of the DUI law as allowing for the administrative and judicial reinstatement fees was improper. I am even more surprised that the judge’s decision was upheld by the Ohio Supreme Court which has become increasingly conservative over the last several years.

But wait! Ohio agencies are not yet done questioning whether the courts really know what they are doing. The Ohio Liquor Control Commission doesn’t seem to think that the U.S. Supreme Court’s recent decision about laws prohibiting wineries from shipping their alcoholic products across state lines directly to consumers applies here.

See, now if the Liquor Control Commission would let wine be shipped directly to consumers, they could just stay home rather than going out, drinking, and then driving home unsober. That way, we address some of the DUI problem, keep the BMV out of trouble for its interpretation of the DUI law, and make wine drinkers happy all at the same time.

I thought I was moving on to new topics and putting the aftermarket parts issue aside for the moment, when the subject reared its ugly head again.

The Korea Herald posted a story yesterday about the problems Koreans face with counterfeit car parts circulating in the country. According to the story, these non-OEM parts are structurally weaker and are unable to bear the same level of stress OEM’s can before breaking. According to the story, “[u]sage of such non-genuine parts was found to be the major cause of several recent car accidents in the country”.

The story went on to identify “[a] recent comparative test by Hyundai Mobis Technical Research Institute shows the low quality of a counterfeit bumper that copied the registered design of a genuine parts supplier. According to the test, the genuine bumper had a compressive strength of 3.3 metric tons whereas the counterfeit broke at 1.5 tons.”

In July 2004, a California Court of Appeals found certification of a class against an insurer for dictating use of non-OEM parts to be proper and allowed the case to proceed as a class action. In that opinion, the California court stated significantly:

The legislative requirement that insurers use replacement parts of like “kind, quality, safety, fit and performance” to OEM parts suggests to us the Legislature is well aware there have been problems with some non-OEM parts. Indeed, as noted by Farmers, one year after the Lebrillas filed their lawsuit, the Legislature enacted Senate Bill No. 1178, authorizing a study to “consider the appropriate criteria or standards [necessary] for certifying crash parts” and to identify an oversight agency for certifying non-OEM parts. (Assembly Committee on Business and Professions, Staff Comments on SB 1178, as amended April 26, 2001 (July 10, 2001).) * * * Clearly, the Legislature and insurance companies are aware that not all inferior non-OEM parts have been eliminated. Thus, we reject Farmers’s [sic] suggestion it can be inferred the Legislature in passing California Code of Regulations, title 10, section 2695.8(j), impliedly determined “crash parts” are not inferior.(Italics added.)

Lebrilla v. Farmers Group, Inc., 119 Cal. App. 4th 1070, 1085 (Cal. Ct. App., 2004)

The frightening thing about the proposed NCOIL model act and Assembly Bill 1163 currently pending in the California Legislature is that they both subscribe to the theory that if you simply say something is true, then it mystically becomes so. Just saying that non-OEM parts are equivalent to OEM parts does not make that statement true. Passing legislation to make that statement a legal presumption does not mean these non-OEM parts are miraculously transformed in to parts of true, measurable quality equivalent to that of OEMs, and it is just foolish to believe that this is a viable solution to a real problem.

Astonishingly, the proposed solution to the imitation parts issue is to to close our eyes and pretend it doesn’t exist, rather than taking action to ensure that any parts used to repair our motor vehicles (OEM or aftermarket) meet the highest safety and quality standards.

Korea is already worried about the poor quality non-OEM parts circulating in that country. Are we silly enough to believe that those parts are not already available in the U.S.? Passing legislation that says these parts are presumed to be suitable for use in vehicle repair will open the floodgates and ensure that we are soon awash in poor quality, cheap, and potentially dangerous replacement car parts. And who will step up to the plate and be responsible for the deaths of our residents when the failures of these parts start killing people?

Let me leave you with these thoughts from the Korea Herald article:

“Use of non-genuine wheel bolts also account for a large number of major accidents on highways. Most of the wheel bolts circulated on the market are non-genuine.

According to the Mobis research institute’s test results, counterfeit wheel bolts are 20 percent weaker than the genuine article, and are even more deficient in structure quality.

The same applies to brake pads. The non-genuine brake pads’ adhesive strength is 40 percent less than genuine pads, undermining the car’s brake performance.”

Enough said.

As always, the RiskProf brings to the fore an important point about Avery: It’s a mutual fund insurer, so the $600 Million award of punitive damages to insureds simply comes out of their own pockets. The Avery court, however, appears to have made a distinction between management and employees as opposed to insured/shareholders. Not that such a distinction would affect who ultimately pays the judgment, but there clearly seems to be a distinction in the court’s mind between these two groups on the propriety of the company’s behavior. Interestingly, the court’s distinction is echoed by State Farm’s own behavior when it treated employees and special friends of SF executives better than it treated its insured/owners.

If anyone wants to delve into the specifics of the case, you can read actual discovery documents produced on the Princeton Auto Body website. Some of my favorites:

The December 5, 1990 SF memo on the aftermarket parts guarantee;

July 2, 1992 letter from SCRS to Ford on lack of quality in replacement parts;

the February 3, 1993 letter to CAPA from the Automotive Body Parts Association;

the September 11, 1990 Detroit Testing Labs “It Ain’t Working” memo;

the June 25, 1997 letter from ASA to CAPA on bodyshops tired of being the guinea pigs; and

the April 6, 1990 “Destroy All Your Copies of Prior Claims Manuals/Handling Procedures Before We Get Another Bad Faith Claim Subpoena or Production of Documents Request” memo.

Discovery can be so entertaining.

Avery v. State Farm Mutual Automobile Insurance Co., 321 Ill. App. 3d 269, 746 N.E.2d 1242, 254 Ill. Dec. 194 (2001), appeal allowed, 201 Ill. 2d 560, 786 N.E.2d 180, 271 Ill. Dec. 922 (2002)

Martin Grace, The Risk Prof, and Evan Schaeffer are having an interesting discussion about the proposed federal class action bill. Martin used Avery v. State Farm Mutual Automobile Insurance Co., 321 Ill. App. 3d 269, 746 N.E.2d 1242, 254 Ill. Dec. 194 (2001), appeal allowed, 201 Ill. 2d 560, 786 N.E.2d 180, 271 Ill. Dec. 922 (2002),
as an example of how class actions brought in state courts can improperly impose liability under one state’s law to actions or contracts created under a different state’s laws.

The concept is understandable, however, I think Avery was not the best case to make the point. Avery was a case involving breach of an insurance contract. What got State Farm in trouble and allowed the Illinois court to comfortably certify a class action was the fact that State Farm was accused of representing and promising its insureds in the insurance contract that repair of their vehicles using less expensive “aftermarket” (non-original equipment manufacture) parts would be of “like kind and quality” as the OEMs and would restore the insureds’ cars to “pre-loss condition”.

The testimony in Avery — particularly from collision repairers who actually fix the cars — was that the LKQ parts were not equivalent to OEMs, often had to be retro-fitted, and sometimes were dangerous. For example, some aftermarket hood latches have been known to spontaneously release or fail while you are driving down the road, causing the hood to whip up into windshield and block your vision. (Oh, you can’t see? But that hood was cheaper!) The decision found that SF was breaching the insurance contract in that the aftermarket parts were inferior to OEMs, and, therefore, SF could not claim to be restoring insureds’ vehicles to “pre-loss condition” as promised in the policy.

My article, “Awaiting Avery and the Fate of Aftermarket Parts”, explains the bigger problems SF faced in this trial than trying to convince people to use aftermarket parts. What created the public relations nightmare for SF was the evidence presented at trial that, while average insureds were told by SF how terrific and equivalent these parts were (and were forced to accept them), SF employees, elite insureds, and “special friends” of SF executives had their cars repaired with OEM parts.

It’s rather difficult to say with a bold face, “These parts are great, of like kind and quality, and you won’t have any problems with them”, when you refuse to use them yourself. It’s like something one of my dealer friends always says when claims representatives try to tell him how safe a clipped vehicle is and that there has been no diminished value as a result of the accident and repair. His response? “That’s just fine. Why don’t you send your wife or daughter over and I’ll sign her up for 60 payments at the full retail price.” Funny. He’s never had a single taker.

But that’s not all. Probably the meanest thing SF did to its insureds with the aftermarket parts was its response to the promise that it would replace, at no cost to the insured, any aftermarket part with which the insured had a problem. When insureds had problems with the non-OEM parts and they contacted SF to make good on the replacement promise, SF told them they had to get the part replaced by the manufacturer under the manufacturer’s warranty. Most aftermarket manufacturers, however, are located in Taiwan, Korea, or elsewhere in Southeast Asia, creating a complete nightmare for the insured to try to get the part replaced. Besides, SF had told insureds SF would replace the problem part. To turn around and force unsuspecting insureds to stay up until 2:00 a.m. to even talk to someone in Korea about the problem was absurd. In this the Avery court agreed stating that SF’s promise was illusory.

Fantasy promises. What would happen if we all just “promised” to pay our premiums but didn’t? Right. We know what would happen. SF would cancel our insurance. So, what’s wrong with making SF step to the plate? Besides, making fake promises just isn’t very neighborly.

Although you may have heard a good deal about the Sims v. Allstate verdict rendered in favor of Allstate in its contention that it need not pay first party diminished value claims, I am certain you have heard nothing about the Allgood v. Meridian decision. Rendered the day before Sims, an Indiana Court of Appeals reversed the trial court’s dismissal of Allgood’s suit and allowed it to go forward against her insurer on exactly the same issue (first party claim for diminished value). Allgood v. Meridian, 807 N.E.2d 131 (In. Ct. App. 2004).

The Sims decision was rendered April 29, 2004. The Allgood decision was issued April 28, 2004. I have waited almost an entire year to see if the Allgood ruling would garner the same fanfare and media attention that the Allstate case was given. In fact, it has received no attention, whatsoever, and was not even mentioned in various articles on the subject of diminished value published soon after the Sims verdict.

Notably, Auto Body Repair News published “Allstate Wins Diminished Value Ruling in Illinois” in its July 2004 issue, and the article cited other states whose recent decisions were alleged setbacks for diminished value. Not only did the ABRN article fail to mention the Allgood decision, when I called the author to confirm certain information about the other decisions, he told me he would look into the questions raised and call me back. I’m still waiting.

One of the issues I needed to have clarified was the author’s assertion that there existed a similar decision in Ohio [precluding diminished value from recovery]. In its vagueness, this statement is misleading. Initially, the alleged “Ohio decision”, while rendered in Ohio, applied Kentucky substantive law. In other words, although it was procedurally brought in Ohio, because that is where the defendant was located, the decision was based upon the law of Kentucky. To say that this is an Ohio decision without clarification implies that it was decided using the law of the State of Ohio. In fact, Ohio courts (applying Ohio law) have not spoken on a first party claimant’s ability to recover diminished value from his or her own carrier.

Secondly, the use of the mere expression “claim for diminished value” or “diminished value” fails to identify a very important component: Is the claim made by a first party or a third party? The law in a single state can be (and often is) different depending on the status of the claimant. The widely publicized opinions have all been first party diminished value cases. They have not involved claims brought by third parties seeking recovery.

These are important distinctions and glossing over them creates confusion. Ok, that’s a nice way of saying that failing to make these distinctions is, intentionally or not, misleading.

From now on, I expect everyone to identify diminished value claims as first party or third party, and if you say that a decision was rendered in X state court, I can assume the substantive law of that jurisdiction was applied. There. Now that I have set the rules, go on reporting and sin no more.